George Michael Gerstein Interviewed by Fund Intelligence on GAO’s ESG Report

Noah Zuss of Fund Intelligence interviewed me, along with Jon Hale (Head of ESG Research at Morningstar) and David Blanchett (Head of Retirement Research at Morningstar Investment Management), regarding the practical effects of the GAO report and its relation to the DOL’s own recent ESG guidance in this developing area. The article can be found here.

Key Takeaways from the GAO Report on ESG Investing by ERISA Fiduciaries

The Government Accountability Office (GAO) yesterday released a new report on ERISA fiduciaries’ incorporation of environmental, social and governance (ESG) factors into its investment process. At 63 pages, here are the key takeaways:

  1. The report is focused only on instances where fiduciaries consider ESG factors as material risk factors that are part of an ordinary prudence analysis. In other words, the GAO did not focus on other strategies (e.g., impact investing), such as those that select an ESG factor for moral reasons, etc., which is the historical association of ESG investing. In this sense, the GAO deserves a lot of credit for focusing on this sophisticated approach to ESG.  You may recall that my paper on climate change risk focused on this very issue.
  2. Rather unfortunately, the report was largely completed prior to the DOL’s issuance of Field Assistance Bulletin (FAB) 2018-01, which we discussed here. The principal recommendation by the GAO is for the DOL to issue guidance on whether a fiduciary can incorporate ESG factors into the management of a default investment option in a defined contribution plan. As you may know, FAB 2018-01 seemed to do just that, though not in an entirely clear manner. Nevertheless, the GAO addressed FAB 2018-01 at the end of the report and narrowed its initial recommendation, namely, that the DOL better explain how fiduciaries can utilize the integration strategy in a QDIA. In the DOL’s defense, FAB 2018-01 seems to address (to some extent) whether a QDIA can utilize the integration strategy; the DOL instead hit the breaks on offering a themed ESG product as a QDIA.
  3. According to the GAO, the DOL is amenable to issuing additional guidance on ESG investing, provided there is enough interest by fiduciaries. The DOL is mum on its Form 5500 project, and whether any ESG disclosures on a revised 5500 are in the works.
  4. Those close to ESG will unlikely find anything surprising in the GAO report on the various reasons why ESG is not yet widely adopted by US retirement plans: questions over the reliability/comparability of disclosures, ratings and rankings–designed to help fiduciaries incorporate ESG factors–all continue to be cited as impediments. Regulatory uncertainty, and definitional ambiguities, also remain hindrances. I recently spoke on a number of these constraints to greater adoption by fiduciaries.

David Grim: SEC Release “Potentially Transformative”

David Grim (left), at tonight’s ICI General Membership Meeting, says the “proposed reforms represent potentially transformative changes for firms providing investment advice to retail investors” and that “firms have real opportunity to engage with regulators and shape any final policy outcomes.”

George Michael Gerstein Discusses Interplay of SEC Release With DOL Fiduciary Rule and State Developments

George Michael Gerstein (right), joining Larry Stadulis (not pictured) and Dave Grim (left) at the ICI General Membership Meeting, identified the moving regulatory pieces and impetus of major fiduciary law reform.

ESG Considerations for ERISA Fiduciaries

I recently moderated a panel for Fi360 called, “ESG Considerations for ERISA Fiduciaries.” Here is a link to the recording.

I was joined by Ali Caffery of Envestnet and Jason Blackwell of Mercer. Too many ESG panels either sidestep the fiduciary issues altogether or discuss them in such abstract terms so as to not be terribly useful. We took a practical approach and walked the audience through some of the key issues a fiduciary should take into account when considering an ESG strategy. We received really strong feedback. I want to thank again Blaine Aikin and his entire team for allowing us to speak on this important topic!